The UK Parliament’s All-Party Parliamentary Group for Building Societies and Financial Mutuals published a report in December 2004 which considered whether regulation lead to demutualisation.
It decided that the drive for new capital was the prime factor in demutualisation and not regulation.
The Group published a further report in March 2006 entitled Windfalls or Shortfalls? The true cost of Demutualisation following an Inquiry.
The Terms of Reference for the Inquiry were:
• Are former mutuals better than remaining mutuals at providing financial services?
• Is there any evidence to suggest that demutualisation has improved the performance of former societies?
• What effect has demutualisation had on the remaining mutual sector?
• How has demutualisation affected consumer choice?
• Have consumers benefited from demutualisation?
• Did the level of windfalls reflect the economic value of members’ interests?
The Inquiry concluded that, amongst other things :
- mutuals, both in the building society and life assurance sectors, performed better than their plc rivals in a variety of financial performance indicators. It was also shown that they pass these cost advantages onto consumers in terms of better rates. This was clearly backed up by any study of ‘best buy’ tables.
- the strategic direction chosen by an institution’s board, particularly one pursuing corporate growth, may push it towards the plc model. This is especially so in the life sector, where some mutuals have sought extra capital.
- There was a widespread view amongst those giving evidence to the Inquiry that members in previous
demutualisations lacked a full understanding of what they were voting for. A combination of the media’s focus
on ‘free’ windfalls, strong campaigning for acceptance by directors of the converting institutions, and the noisy urgings of the “carpetbaggers” led to one-sided debates.
- The Inquiry heard evidence that the impact of subsequent higher charges had, over time, outweighed the
benefits of the pay-outs for many members. Others meanwhile, gained pay-outs which were disproportionately large given the level of their interests.
The report also refers to the first case of ‘re-mutualisation’ in 2005 – where former building society Bristol & West’s savings business and branch network were bought by the Britannia Building Society.
In Australia, Part 5 of Schedule 4 to the Corporations Act regulates demutualisations including disclosure of proposed demutualisations.